The invention relates generally to using an offer matching system to collect and to execute binding offers to buy and to sell a traded item. Existing offer matching systems typically operate in a manner that allows a participant to receive fairly complete information about offers submitted by such participant and the status of such offers. Existing participant systems typically operate in a manner that allows a customer who submits an order to a participant system to receive fairly complete information about offers submitted by such customer. However, existing offer matching systems do not typically permit unknown persons to receive detailed information about an offer.
Existing offer matching facilities typically include a central computer (referred to herein as an offer matching system) that is programmed to accept offers from multiple remotely located participant systems and to execute compatible buy and sell offers in accordance with a predetermined set of rules. (By “execute” we mean give rise to a binding obligation to clear and settle a trade.)
For example, an offer matching system for securities operated by a stock exchange that is organized as a not-for-profit member organization might include a central computer facility operated by the stock exchange organization (referred to herein as the offer matching system) that communicates with multiple computer systems operated by its members (referred to herein in as participant systems). As another example, an alternative trading facility for securities operated by a broker-dealer might include a central computer system operated by the broker-dealer (referred to herein as an offer matching system) that communicates with multiple computer systems (referred to herein as participant systems) operated by clients of the broker dealer.
The term “offer matching system” is herein limited to systems where offers submitted by participants represent binding offers by participants to buy or to sell one or more traded items, subject to predetermined terms and conditions. Thus the present invention does not concern so called “bulletin board systems” where participants can post non-binding indications of interest in buying or selling one or more traded items.
Existing offer matching systems operated by stock exchanges often permit a few members, referred to as specialists, to submit quotations which are in effect offers to buy or to sell securities for the quoted prices. For purposes herein, such quotations from specialists are included within the term “offer”. Other existing offer matching systems permit participating market makers to publish bid and ask quotations that the market makers are obligated to honor, subject to various limitations and exceptions. For purposes of this description, such quotations from market makers are included within the term offer. Existing offer matching systems often permit participants to submit offers to buy or to sell a specified quantity (or less) of a traded item at a specified price (or better). Such offers are also included within the term “offer” as used herein.
Typically, if an existing offer matching system determines that a particular offer is to be executed, then the participant that submitted such offer becomes legally bound to buy or to sell (as the case may be) a particular quantity of the relevant traded item for a particular price, subject to predetermined terms and conditions applicable to the operation of the offer matching system. For example, if a first participant (for example a market maker) submitted to an offer matching system a first offer to buy a large number of shares of Acme common stock for $1.00 per share or better and a second participant (for example, a broker forwarding an offer on behalf of a client) submitted to the offer matching system a second offer to sell 100 shares of Acme common stock for $1.00 per share or better, then the offer matching system might determine that the first offer can be executed against the second offer for 100 shares at a price of $1.00 per share. In such a case, the first participant would become obligated to buy 100 shares of Acme common for $1.00 per share and the second participant would become obligated to sell 100 shares of Acme common for $1.00 per share.
There are many different methods that might be used to consummate trades once an offer matching system determines that particular offers are to be executed. In the case of the above example of a trade of 100 shares of Acme common for $1.00 per share, the offer matching system could disclose to both the first participant and the second participant the identity of the other, in which case the first participant and the second participant could clear and settle the trade directly with one another. As an alternative, all trades might occur with a single designated intermediary (such as a specialist in the case of a stock exchange or a sponsoring broker dealer in the case of an alternative trading system). If a single designated intermediary were used, then the first participant would become obligated to buy 100 shares of Acme common from the designated intermediary, the designated intermediary would become obligated to sell 100 shares of Acme common to the first participant, the second participant would become obligated to sell 100 shares of Acme common to the designated intermediary and the designated intermediary would become obligated to buy 100 shares of Acme common from the second participant—and there would be no need to reveal to the first participant the identity of the second participant, or vice versa. As used herein, the expression “execute one offer against another offer” includes both the case where the submitting participants become obligated to trade directly with one another and the case where the submitting participants become obligated to trade with one or more intermediaries.
Existing offer matching systems typically include some facility for distributing information about outstanding offers and about trades arising out of the execution of offers. It is typical for such facilities to include:    Electronically publishing information about prices and/or quantities for offers currently active in the offer matching system. Such information might be limited to the current best priced buy and sell offers, or it might include information about several buy and sell offers. Often such information does not identify the persons responsible for a particular offer unless such persons are specialists or market makers.    Electronically publishing information about trades executed by the offer matching system. Well known examples of this include stock tickers which publish for each trade the affected security, the quantity traded and the price at which a trade occurred.    Permitting participant systems that have established a secure communications link to obtain detailed information about offers for which the relevant participant is responsible.